**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-Q**





(Mark
      One)


x
        QUARTERLY REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934


For
        the
        thirteen weeks ended April 1, 2006
 
 o
        TRANSITION REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 For
        the
        transition period from _______to _______


Commission
      File Number 1-5084





**TASTY
      BAKING COMPANY**


(Exact
      name of Company as specified in its charter)








Pennsylvania(State
                of Incorporation)
            23-1145880 (IRS
                Employer Identification Number)





**2801
      Hunting Park Avenue, Philadelphia, Pennsylvania 19129**


(Address
      of principal executive offices including Zip Code)





**215-221-8500**


(Company's
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.  YES x NOo




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated Filer o   Accelerated
      Filer x   Non-accelerated
      Filer o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES 
      oNOx




There
      were
      8,264,626 shares of Common Stock outstanding as of May 6, 2006.











**TASTY
      BAKING COMPANY AND SUBSIDIARIES**




**INDEX**




PART
                  I.FINANCIAL
                  INFORMATIONItem
                  1.Financial
                  Statements (Unaudited)Consolidated
                  Balance SheetsApril
                  1, 2006 and December 31,
                  2005
              3Consolidated
                  Statements of
                  OperationsThirteen
                  weeks ended April 1, 2006 and March 26,
                  2005
              4Consolidated
                  Statements of Cash FlowsThirteen
                  weeks ended April 1, 2006 and March 26,
                  2005
              5Notes
                  to Consolidated Financial
                  Statements
              6-13Item
                  2. Management's Discussion and Analysis of Financial
                  Condition
                  and Results of Operations
              14-18Item
                  3. Quantitative and Qualitative Disclosures About
                  Market Risk
              19Item
                  4. Controls and Procedures
              19PART
                  II. OTHER INFORMATIONItem
                  5. Other Information
              20Item
                  6. Exhibits
              21Signature
              22
 -2-


**Part
      I.****FINANCIAL
      INFORMATION**


**Item
      1.****Financial
      Statements**





**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


(Unaudited)


(000’s)


**April
                  1, 2006**
              
              **December
                  31, 2005****Assets****Current
                  assets:**Cash
              
              $
              207
              
              $
              251Receivables,
                  less allowance of$3,154
                  and $3,272, respectively
              
              
              20,396
              
              
              18,389Inventories
              
              
              6,262
              
              
              6,472Deferred
                  income taxes
              
              
              2,127
              
              
              2,127Prepayments
                  and other
              
              
              1,686
              
              
              1,769Total
                  current assets
              
              
              30,678
              
              
              29,008**Property,
                  plant and equipment:**Land
              
              
              1,433
              
              
              1,433Buildings
                  and improvements
              
              
              42,785
              
              
              42,282Machinery
                  and equipment
              
              
              138,292
              
              
              136,392182,510
              
              
              180,107Less
                  accumulated depreciation
              
              
              115,369
              
              
              113,85967,141
              
              
              66,248**Other
                  assets:**Long-term
                  receivables from independent sales distributors
              
              
              10,999
              
              
              10,700Deferred
                  income taxes
              
              
              13,223
              
              
              13,251Other
              
              
              2,202
              
              
              2,10026,424
              
              
              26,051**Total
                  assets**
              
              $
              124,243
              
              $
              121,307**Liabilities****Current
                  liabilities:**Current
                  obligations under capital leases
              
              $
              542
              
              $
              534Notes
                  payable, banks
              
              
              631
              
              
              631Book
                  overdraft
              
              
              3,620
              
              
              3,482Accounts
                  payable
              
              
              3,967
              
              
              3,934Accrued
                  payroll and employee benefits
              
              
              6,865
              
              
              6,810Reserve
                  for restructures
              
              
              102
              
              
              247Other
              
              
              3,453
              
              
              3,734Total
                  current liabilities
              
              
              19,180
              
              
              19,372Long-term
                  obligations under capital leases, less current portion
              
              
              396
              
              
              534Long-term
                  debt
              
              
              25,550
              
              
              22,558Accrued
                  pensions and other liabilities
              
              
              24,493
              
              
              24,599Postretirement
                  benefits other than pensions
              
              
              16,601
              
              
              16,955**Total
                  liabilities**
              
              
              86,220
              
              
              84,018**Shareholders'
                  equity**Common
                  stock
              
              
              4,558
              
              
              4,558Capital
                  in excess of par value of stock
              
              
              29,002
              
              
              28,910Retained
                  earnings
              
              
              23,019
              
              
              22,47256,579
              
              
              55,940Less:Accumulated
                  other comprehensive loss
              
              
              6,179
              
              
              6,287Treasury
                  stock, at cost
              
              
              12,377
              
              
              11,912Stock
                  compensation arrangements, receivables and deferrals
              
              
              
              
              
              45238,023
              
              
              37,289**Total
                  liabilities and shareholders' equity**
              
              $
              124,243
              
              $
              121,307




See
      Notes
      to Consolidated Financial Statements.


-3-


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(Unaudited)


(000’s,
      except per share amounts)





**For
                the Thirteen Weeks Ended****April
                1, 2006**
            
            **March
                26, 2005****Gross
                sales**
            
            $
            69,333
            
            $
            65,946Less
                discounts and allowances
            
            
            (26,423
            )
            
            (24,792
            )Net
                sales
            
            
            42,910
            
            
            41,154**Costs
                and expenses:**Cost
                of sales
            
            
            26,820
            
            
            26,024Depreciation
            
            
            1,543
            
            
            1,801Selling,
                general and administrative
            
            
            12,944
            
            
            12,654Interest
                expense
            
            
            375
            
            
            321Other
                income, net
            
            
            (300
            )
            
            (238
            )41,382
            
            
            40,562Income
                before provision forincome
                taxes
            
            
            1,528
            
            
            592**Provision
                for income taxes**
            
            
            574
            
            
            113**Net
                income**
            
            $
            954
            
            $
            479**Average
                common shares outstanding:**Basic
            
            
            8,051
            
            
            8,064Diluted
            
            
            8,265
            
            
            8,167**Per
                share of common stock:**Net
                income:Basic
                and Diluted
            
            $
            0.12
            
            $
            0.06Cash
                dividend
            
            $
            0.05
            
            $
            0.05




See
      Notes
      to Consolidated Financial Statements.




-4-


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOW**


(Unaudited)


(000’s)




**For
                    the Thirteen Weeks Ended****April
                    1, 2006**
                
                
                **March
                    26, 2005 (a**
                **)****Cash
                    flows from (used for) operating activities**Net
                    income
                
                
                954
                
                
                479Adjustments
                    to reconcile net income to netcash
                    provided by operating activities:Depreciation
                
                
                1,543
                
                
                1,801Gain
                    on sale of routes
                
                
                (48
                )
                
                -Restructure
                    payments
                
                
                (145
                )
                
                (186
                )Pension
                    expense
                
                
                5
                
                
                84Deferred
                    taxes
                
                
                (52
                )
                
                (87
                )Post
                    retirement medical
                
                
                (354
                )
                
                (73
                )Other
                
                
                37
                
                
                337Changes
                    in assets and liabilities:Increase
                    in receivables
                
                
                (2,104
                )
                
                (2,778
                )(Increase)
                    decrease in inventories
                
                
                210
                
                
                (347
                )(Increase)
                    decrease in prepayments and other
                
                
                140
                
                
                (24
                )Increase
                    in accrued taxes
                
                
                296
                
                
                -Decrease
                    in accounts payable, accruedpayroll
                    and other current liabilities
                
                
                (489
                )
                
                (3,586
                )**Net
                    cash used for operating activities**
                
                
                (7
                )
                
                (4,380
                )**Cash
                    flows from (used for) investing activities**Purchase
                    of property, plant and equipment
                
                
                (2,392
                )
                
                (392
                )Proceeds
                    from independent sales distributor loan repayments
                
                
                1,236
                
                
                1,814Loans
                    to independent sales distributors
                
                
                (1,417
                )
                
                (2,142
                )Other
                
                
                (57
                )
                
                1**Net
                    cash used for investing activities**
                
                
                (2,630
                )
                
                (719
                )**Cash
                    flows from (used for) financing activities**Dividends
                    paid
                
                
                (407
                )
                
                (409
                )Payment
                    of long-term debt
                
                
                (288
                )
                
                (177
                )Net
                    increase in short-term debt
                
                
                -
                
                
                4,100Additional
                    long-term debt
                
                
                3,150
                
                
                1,000Net
                    increase in book overdraft
                
                
                138
                
                
                600Purchase
                    of treasury stock
                
                
                -
                
                
                (38
                )**Net
                    cash from financing activities**
                
                
                2,593
                
                
                5,076**Net
                    decrease in cash**
                
                
                (44
                )
                
                (23
                )Cash,
                    beginning of year
                
                
                251
                
                
                208Cash,
                    end of period
                
                
                207
                
                
                185**Supplemental
                    Cash Flow Information**Cash
                    paid (refunded) during the period for:Interest
                
                
                396
                
                
                320Income
                    taxes
                
                
                4
                
                
                (47
                )
 (a)
          Amounts have been reclassified for comparative purposes.
  See
            Notes
            to Consolidated Financial Statements.
  -5-


**Notes
      to Consolidated Financial
      Statements**


(000’s,
      except share and per share amounts)


All
      disclosures are pre-tax, unless otherwise noted.





**1.**  **Summary
      of Significant Accounting Policies**





***Nature
      of the Business***


Tasty
      Baking Company is a leading producer of sweet baked goods and one of the
      nation’s oldest and largest independent baking companies, in operation since
      1914. It has two manufacturing facilities, one in Philadelphia, PA, and a second
      facility in Oxford, PA.





***Fiscal
      Year***


The
      company and its subsidiaries operate on a 52-53 week fiscal year, ending on
      the
      last Saturday of December. Fiscal year 2006 is a 52-week year. Fiscal 2005
      was a
      53-week year.





***Basis
      of Consolidation***


The
      consolidated financial statements include the accounts of the company and its
      subsidiaries. Inter-company transactions are eliminated.





***Interim
      Financial Information***


In
      the
      opinion of management, the accompanying unaudited consolidated financial
      statements contain all adjustments, consisting only of normal and recurring
      adjustments, necessary to present fairly the financial position of the company
      as of April 1, 2006 and December 31, 2005, the results of its operations for
      the
      thirteen weeks ended April 1, 2006 and March 26, 2005, and cash flows for the
      thirteen week period ended April 1, 2006 and March 26, 2005, respectively.
      These
      Unaudited consolidated financial statements should be read in conjunction with
      the consolidated financial statements and footnotes thereto in the company’s
      2005 Form 10-K. In addition, the results of operations for the thirteen weeks
      ended April 1, 2006 are not necessarily indicative of the results to be expected
      for the full year.





***Use
      of Estimates***


Certain
      amounts included in the accompanying consolidated financial statements and
      related footnotes reflect the use of estimates based on assumptions made by
      management. These estimates are made using all information available to
      management, and management believes that these estimates are as accurate as
      possible as of the dates and for the periods that the financial statements
      are
      presented. Actual amounts could differ from these estimates. Significant
      estimates for the company include customer discounts and allowances,
      collections, long-lived asset impairment, pension and postretirement plan
      assumptions, workers’ compensation expense and income tax
      valuation.





***Concentration
      of Credit*** **


The
      company encounters, in the normal course of business, exposure to concentrations
      of credit risk with respect to trade receivables. Ongoing credit evaluations
      of
      customers’ financial conditions are performed and, generally, no collateral is
      required. The company maintains reserves for potential credit losses and such
      losses have not exceeded management’s expectations.





***Revenue
      Recognition***


Revenue
      is
      recognized when title and risk of loss pass, which is upon receipt of goods
      by
      the independent sales distributors, retailers or third-party distributors.
      For
      route area sales, the company sells to independent sales distributors who,
      in
      turn, sell to retail customers. Revenue for sales to independent sales
      distributors is recognized upon receipt of the product by the distributor.
      For
      sales made directly to a retail customer or a third-party distributor, revenue
      is recognized upon receipt of the products by the retail customer or third-party
      distributor.





***Sale
      of Routes***


Sales
      distribution routes are owned by independent sales distributors who purchase
      the
      exclusive right to sell and distribute Tastykake products in defined
      geographical territories. When the company sells routes to independent sales
      distributors, it recognizes a gain or loss on the sale. Routes sold by the
      company are either existing routes that the company has previously purchased
      from an independent sales distributor, or newly established routes in new
      geographies. Any gain or loss recorded by the company is based on the difference
      between the sales price and the carrying value of the route, and is recorded
      as
      a separate line item in the consolidated statements of operations. The company
      recognizes gains on sales of routes because all material services or conditions
      related to the sale have been substantially performed or satisfied by the
      company as of the date of sale. In most cases, the company will finance a
      portion of the purchase price with interest bearing notes. Interest rates on
      the
      notes are based on treasury yields plus a spread. The notes require full
      repayment of the loan amount. The company has no obligation to later repurchase
      a route but may choose to do so to facilitate a change in route
      ownership.





-6-


***Cash
      and Cash Equivalents***


The
      company considers all investments with an original maturity of three months
      or
      less on their acquisition date to be cash equivalents. Book overdrafts are
      recorded within current liabilities. Cash flows associated with book overdrafts
      are classified as financing activities. During 2005, the company revised the
      classification for book overdrafts in the Consolidated Balance Sheet and the
      Consolidated Statements of Cash Flows. They were previously reported as an
      operating activity. The revised classifications have also been reflected in
      the
      comparative prior year amounts for purposes of consistency.





***Inventory
      Valuation***


Inventories,
      which include material, labor and manufacturing overhead, are stated at the
      lower of cost or market, cost being determined using the first-in, first-out
      (“FIFO”) method. Inventory balances for raw materials, work in progress, and
      finished goods are regularly analyzed and provisions for excess and obsolete
      inventory are recorded, if necessary, based on the forecast of product demand
      and production requirements.





Spare
      parts, which are recorded as property, plant and equipment, are reviewed for
      potential obsolescence on a quarterly basis. Reserves are established for all
      spare parts that are no longer usable and have no fair market value.





***Property
      and Depreciation***


Property,
      plant and equipment are carried at cost. Depreciation is computed by the
      straight-line method over the estimated useful lives of the assets. Buildings
      and improvements are depreciated over thirty-nine years. Machinery and equipment
      are depreciated over a range of seven to fifteen years. Spare parts are
      capitalized as part of machinery and equipment and are expensed as utilized.
      The
      enterprise resource planning (“ERP”) system is being depreciated over five
      years.





Costs
      of
      major additions, replacements and improvements are capitalized, while
      maintenance and repairs, which do not improve or extend the life of the
      respective assets, are expensed as incurred.





For
      significant projects, the company capitalizes interest and labor costs
      associated with the construction and installation of plant and equipment and
      significant information technology development projects.





In
      accordance with SFAS No.144, long-lived assets are reviewed for impairment
      at
      least annually or whenever events or changes in circumstances indicate that
      the
      carrying amount may not be recoverable. In instances where the carrying amount
      may not be recoverable, the review for potential impairment utilizes estimates
      and assumptions of future cash flows directly related to the asset. For assets
      where there is no plan for future use, the review for impairment includes
      estimates and assumptions of the fair market value of the asset, which is based
      on the best information available to the company. These assets are recorded
      at
      the lower of their book value or market value.





In
      accordance with FASB Interpretation 47, “Accounting for Conditional Asset
      Retirement Obligations”, the company must recognize liabilities for obligations
      related to asset retirement activities in which the timing and (or) method
      of
      settlement are conditional on a future event when it can reasonably estimate
      the
      fair value of each conditional asset retirement obligation. In December 2005,
      the company purchased from its Pension Plan the Philadelphia production facility
      (“Hunting Park Bakery”), which contains asbestos. The Company is not under any
      current obligation to remove the asbestos since it is encased and in compliance
      with current regulatory codes. The company may have an obligation to remove
      the
      asbestos if the facility were to undergo a major renovation or to be demolished.
      The company has no current plans to demolish or perform any major renovations.
      The fair value cannot be determined because the company has not made any
      decision to retire the facility, but in the future, it would have options
      including selling, demolishing or abandonment. The company cannot recognize
      a
      liability for the potential removal of asbestos because it cannot reasonably
      estimate the fair value of the obligation. The company does not have sufficient
      information because the settlement date or range of potential settlement dates
      is not estimable at this time and therefore sufficient information is not
      available to apply an expected present value technique.





***Training
      Grants***


The
      company receives grants from various Commonwealth of Pennsylvania agencies
      which
      reimburse the company for specific training expenses. The company records
      receipt of these grants as an offset to the related expense.




-7-


***Marketing
      Costs***


The
      company expenses marketing costs, which include advertising and consumer
      promotions, as incurred. Marketing costs are included as a part of selling,
      general and administrative expense.





***Computer
      Software Costs***


The
      company capitalizes certain costs, such as software coding, installation and
      testing that are incurred to purchase or create and implement internal use
      computer software in accordance with Statement of Position 98-1, “ *Accounting
      for Costs of Computer Software Development or Obtained for Internal
      Use* .”
The
      majority of the company’s capitalized software relates to the implementation of
      the enterprise resource planning (“ERP”) and handheld computer
      systems.





***Shipping
      and Handling Costs***


Shipping
      and handling costs are included as a part of selling, general and administrative
      expense.





***Pension
      Plan***


The
      company’s funding policy for the defined benefit pension plan (the “DB Plan”) is
      to contribute amounts deductible for federal income tax purposes plus such
      additional amounts, if any, as the company’s actuarial consultants advise to be
      appropriate. In 1987 the company elected to immediately recognize all gains
      and
      losses in excess of the pension corridor.





The
      company accrues normal periodic pension expense or income during the year based
      upon certain assumptions and estimates from its actuarial consultants in
      accordance with Statement of Financial Accounting Standard No. 87, “Employers’
Accounting for Pensions.” These estimates and assumptions include discount rate,
      rate of return on plan assets, compensation increases, mortality and employee
      turnover. In addition, the rate of return on plan assets is directly related
      to
      changes in the equity and credit markets, which can be very volatile. The use
      of
      the above estimates and assumptions, market volatility and the company’s
      election to immediately recognize all gains and losses in excess of its pension
      corridor in the current year may cause the company to experience significant
      changes in its pension expense or income from year to year. Expense or income
      that falls outside the corridor is recognized only in the fourth quarter of
      each
      year.





The
      company amended the DB Plan to freeze benefit accruals effective March 26,
      2005.
      Participants will be credited for service after March 26, 2005 solely for
      vesting purposes pursuant to the terms of the DB Plan. Each vested participant
      will receive their total pension benefit accrued through March 26, 2005 upon
      retirement from the company.





Effective
      March 27, 2005, the company adopted a new company funded retirement plan, which
      is a defined contribution benefit (the “DC Plan”) that replaces the benefit
      provided in the DB Plan. In the new company DC Plan, the company contributes
      cash weekly into individual accounts for eligible employees. These contributions
      are equal to a percentage of an employee’s eligible compensation and increase in
      pre-established increments based on a combination of the employee’s age and
      years of credited service.





***Treasury
      Stock***


Treasury
      stock is stated at cost. Cost is determined by the FIFO method.





***Accounting
      for Income Taxes***


The
      company accounts for income taxes under the asset and liability method. Deferred
      tax assets and liabilities are determined based on differences between financial
      reporting and tax basis of assets and liabilities and are measured using the
      enacted tax rates in effect when the differences are expected to be recovered
      or
      settled.





***Net
      Income Per Common Share***


Net
      income
      per common share is presented as basic and diluted earnings per share. Net
      income per common share - Basic is based on the weighted average number of
      common shares outstanding during the year. Net income per common share - Diluted
      is based on the weighted average number of common shares and dilutive potential
      common shares outstanding during the year. Dilution is the result of outstanding
      stock options and restricted shares.





***Share-based
      Compensation***


The
      company adopted SFAS 123(R) using the modified prospective transition method,
      which requires the application of the accounting standard as of January 1,
      2006,
      the first day of the company’s fiscal year 2006. The company’s consolidated
      financial statements as of and for the period ending April 1, 2006 reflect
      the
      impact of SFAS 123(R). In accordance with the modified prospective transition
      method, the company’s consolidated financial statements for prior periods have
      not been restated to reflect, and do not include, the impact of SFAS
      123(R).




-8-


Share-based
      compensation expense recognized during the current period is based on the value
      of the portion of share-based payment awards that is ultimately expected to
      vest. The total value of compensation expense for restricted stock is equal
      to
      the ending price of Tasty Baking Company shares on the date of grant. SFAS
      123(R) requires forfeitures to be estimated at the time of grant in order to
      estimate the amount of share-based awards that will ultimately vest. The
      forfeiture rate is based on historical rates. Share-based compensation expense
      recognized in the company’s consolidated statements of income for the first
      quarter of fiscal 2006 includes (i) compensation expense for share-based payment
      awards granted prior to, but not yet vested as of January 1, 2006, based on
      the
      grant-date fair value estimated in accordance with the pro forma provisions
      of
      SFAS 123 and (ii) compensation expense for share-based payment awards granted
      subsequent to January 1, 2006, based on the grant-date fair value estimated
      in
      accordance with the provisions of SFAS 123(R). As share-based compensation
      expense recognized in the first quarter of fiscal 2006 is based on awards
      ultimately expected to vest, it has been reduced for estimated forfeitures.
      In
      the company’s pro-forma information required under SFAS 123 for the periods
      prior to fiscal 2006, the company accounted for forfeitures as they
      occurred.





On
      December 16, 2005, the company’s Board of Directors and its Compensation
      Committee approved the acceleration of vesting of all outstanding, unvested
      stock options previously awarded to the company’s employees, officers (including
      executive officers) and directors. All unvested stock options were
“out-of-the-money” as of the closing stock price of December 16, 2005. The
      company had previously imposed a five-year holding period requirement on any
      shares obtained through the exercise of options awarded on or after August
      7,
      2003. The purpose of this accelerated vesting was to enable the company to
      avoid
      recognizing compensation expense associated with these options in future periods
      as required by Statement of Financial Accounting Standards (SFAS) No. 123R,
      which the company adopted January 1, 2006.








**2.**  **Restructure
      Charges**





From
      fiscal years 2001 to 2005, the company implemented several strategies that
      resulted in restructuring charges. In the fourth quarter 2005, the company
      incurred a $145 restructure charge related to specific arrangements made with
      certain employees who departed the company. Also in the fourth quarter, the
      company incurred a $77 restructure charge related to rent, utility and security
      charges for closed thrift stores that were previously underestimated and the
      company reclassified $208 of the restructuring liability related to accrued
      liabilities for ongoing services to certain employees who departed the company.
      The company recognized net restructure charge reversals in 2005 of $151.





**RESTRUCTURE
      RESERVE ACTIVITY**




**Lease
                  obligations**
              ****
              **Severance**
              ****
              **Other**
              ****
              **Total****Balance
                  December 25, 2004**
              
              **$**
              **407**
              
              **$**
              **592**
              
              **$**
              **38**
              
              **$**
              **1,037**Q1
                  2005 Payments
              
              
              (116
              )
              
              (58
              )
              
              (12
              )
              
              (186
              )**Balance
                  March 26, 2005**
              
              
              **291**
              
              
              **534**
              
              
              **26**
              
              
              **851**Q2
                  2005 Payments
              
              
              (89
              )
              
              (57
              )
              
              (11
              )
              
              (157
              )**Balance
                  June 25, 2005**
              
              
              **202**
              
              
              **477**
              
              
              **15**
              
              
              **694**Q3
                  2005 Payments
              
              
              (49
              )
              
              (58
              )
              
              (9
              )
              
              (116
              )**Balance
                  September 24, 2005**
              
              
              **153**
              
              
              **419**
              
              
              **6**
              
              
              **578**Q4
                  2005 Restructure charges
              
              
              –
              
              
              136
              
              
              9
              
              
              145Q4
                  2005 Reclassification of severance related items
              
              
              –
              
              
              (208
              )
              
              –
              
              
              (208
              )Q4
                  2005 Reversal of reserve, net of adjustments
              
              
              40
              
              
              (151
              )
              
              37
              
              
              (74
              )Q4
                  2005 Payments
              
              
              (65
              )
              
              (108
              )
              
              (21
              )
              
              (194
              )**Balance
                  December 31, 2005**
              
              
              **128**
              
              
              **88**
              
              
              **31**
              
              
              **247**2006
                  Payments
              
              
              (54
              )
              
              (88
              )
              
              (3
              )
              
              (145
              )**Balance
                  April 1, 2006**
              
              **$**
              **74**
              
              **$**
              –
              
              **$**
              **28**
              
              **$**
              **102**




The
      balance of the lease obligations and other charges are expected to be paid
      as of
      November 2006.




-9-




**3.**  **Inventories**







Inventories
                    are classified as follows:**April
                    1, 2006**
                
                
                **Dec.
                    31, 2005**Finished
                    goods
                
                $
                1,596
                
                $
                1,556Work
                    in progress
                
                
                157
                
                
                173Raw
                    materials and supplies
                
                
                4,509
                
                
                4,743$
                6,262
                
                $
                6,472








**4.**  **Credit
      Facility**





On
      September 13, 2005, the company entered into an Amended and Restated Credit
      Agreement (Amended Credit Agreement) to replace its prior credit facility.
      The
      Amended Credit Agreement increased the commitment from $30 million to $35
      million; changed the terms from secured to unsecured; extended the maturity
      from
      a three year term to a five year term expiring in September 2010; eliminated
      the
      short term portion and reduced the interest rate margins and the commitment
      fees
      charged to the company as described in the Amended Credit Agreement.
      Modifications were also made to the Tangible Net Worth covenant and the Funded
      Debt covenant that make them less restrictive. Interest rates in the Amended
      Credit Agreement are indexed to LIBOR based upon the company’s ratio of debt to
      EBITDA and rates may decrease up to 50 basis points based on that ratio.
      Commitment fees are charged on the unused portion of the commitment and range
      from 10 to 30 basis points based upon the same ratio used to determine interest
      rates. The proceeds from the Amended Credit Agreement will be used for general
      corporate purposes and such other uses as permitted.





On
      September 13, 2005, the company also entered into a term loan for $5.3 million.
      The term loan is based upon a 15 year amortization with a scheduled maturity
      in
      five years due in September 2010. The terms and conditions of the term loan
      are
      generally the same as those in the Amended Credit Agreement. The entire proceeds
      of the term loan were used to fund a voluntary contribution to the company’s
      previously frozen DB Plan.





On
      December 19, 2005, the company also entered into a mortgage loan for $2.15
      million and a second term loan for $2.55 million to fund the purchase of the
      Hunting Park Bakery building and land for $4.7 million from the company’s DB
      Plan. The mortgage loan is based upon a 20 year amortization with a scheduled
      maturity in ten years due in December 2015. The term loan is based upon a 15
      year amortization with a scheduled maturity in five years due September 2010.
      The terms and conditions of the mortgage loan and the term loan are generally
      the same as those in the Amended Credit Agreement.





In
      order
      to hedge a portion of the company’s exposure to changes in interest rates the
      company entered into a five-year $6 million interest rate swap on August 3,
      2005
      with a fixed LIBOR rate of 4.64%. The company also entered into two five-year
      interest rate swaps for its term loans for $5.3 and $2.55 million on September
      13 and December 21, 2005 with fixed LIBOR rates of 4.42% and 4.99% respectively.
      Additionally, on December 21, 2005 the company entered into a ten-year $2.15
      million interest rate swap for its mortgage loan with a fixed LIBOR rate of
      5.08%. The LIBOR rates above are subject to an additional credit spread which
      can range from 75 basis points to 140 basis points.








**5.**  **Defined
      Benefit Retirement Plans**





The
      company maintains a partially funded DB Plan providing retirement benefits.
      Benefits under this DB Plan generally are based on the employees’ years of
      service and compensation during the years preceding retirement. The company
      maintains an unfunded Supplemental Executive Retirement Plan (“SERP”) providing
      retirement benefits for key employees designated by the Board of Directors.
      At
      this time, none of the participants in the defined benefit SERP are employed
      by
      the company. Benefits under the SERP generally are based on the key employees’
years of service and compensation during the years preceding retirement. The
      company also maintains an unfunded Directors’ Retirement Plan. The benefit
      amount is the annual retainer in the year of retirement.





In
      December 2004, upon approval by the Board of Directors, the company announced
      to
      its employees that it was amending the DB Plan to freeze benefit accruals
      effective March 26, 2005. Participants will be credited for service after March
      26, 2005, solely for vesting purposes pursuant to the terms of the DB Plan.
      Each
      vested participant will receive their total defined benefit pension accrued
      through March 26, 2005, upon retirement from the company.




-10-




Effective
      March 27, 2005, the company adopted a new company DC Plan which is a defined
      contribution benefit that replaces the benefit provided in the DB Plan. See
      Note
      6 in the financial statements.





Significant
      transactions between the company and the DB Plan that occurred during 2005
      were:
      (1) a tax deductible cash contribution of $5.3 million made on September 13,
      2005; and (2) the purchase of the Hunting Park Bakery on December 20, 2005
      for
      $4.7 million. The $5.3 million contribution was made to improve the cash funded
      status of the DB Plan. The purchase of the Hunting Park Bakery was made to
      reduce interest costs to the company and to further improve the funded status
      of
      the DB Plan. Prior to the purchase, the company recorded its use of the Hunting
      Park Bakery as a capital lease with the DB Plan. The purchase price of $4.7
      million for the Hunting Park Bakery was determined by the terms of its lease
      agreement and exceeded the DB Plan’s book value by approximately $1.6 million.
      The terms of the lease agreement were drafted in 1984 to comply with specific
      guidelines established by the Department of Labor that permitted the continued
      lease of the Hunting Park Bakery as an exemption to ERISA’s prohibited
      transaction rules. Both of these transactions were funded with the proceeds
      of
      the term loan and mortgage loan.





The
      components of the DB pension, SERP, and Directors’ Retirement plans cost are
      summarized as follows:








**Thirteen
                Weeks Ended****April
                1, 2006**
            
            
            **March
                26, 2005**Service
                cost-benefits earned during the year
            
            $
            6
            
            $
            131Interest
                cost on projected benefit obligation
            
            
            1,242
            
            
            1,209Expected
                return on plan assets
            
            
            (1,265
            )
            
            (1,266
            )Prior
                service cost amortization
            
            
            (4
            )
            
            (4
            )SERP
                amendment
            
            
            26
            
            
            14Net
                pension amount charged to income
            
            $
            5
            
            $
            84






6.  **Defined Contribution
      Retirement Plans**





Effective
      March 27, 2005, the company adopted a new DC Plan which is a defined
      contribution benefit that replaces the benefit provided in the DB Plan. In
      the
      new DC Plan, the company will make cash contributions into individual accounts
      for all eligible employees. These contributions will be equal to a percentage
      of
      an employee’s eligible compensation and will increase with the employee’s age
      and years of credited service.





Effective
      March 27, 2005, the company merged the Tasty Baking Company 401(k) Thrift Plan
      (“Thrift Plan”) and the Tasty Baking Oxford, Inc. 401(k) Savings Plan (“Oxford
      Plan”) into the Tasty Baking Company 401(k) and Company Funded Retirement Plan
      (“Retirement Plan”). All assets of the Thrift Plan and the Oxford Plan were
      transferred immediately after the effective date to the Retirement Plan. In
      the
      Retirement Plan, all participants will receive a company match of 50% of the
      first 4% contributed by the participant to the Retirement Plan which will be
      paid in cash. In the Retirement Plan, the waiting period for participation
      has
      been eliminated. Participants are offered a broader array of investment choices.





In
      addition, as a replacement for the company’s DB Plan which was frozen as of
      March 26, 2005, the company will make weekly contributions to the Retirement
      Plan for all eligible employees. As noted above, these contributions are based
      on employees’ point values which are the sum of age and years of service as of
      January 1 each year. All employees will receive contributions that range from
      2%
      to 5% of eligible compensation relative to their point totals. Employees at
      March 27, 2005 who have 20 years of service or 10 years of service and 60 points
      received an additional “grandfathered” contribution of between 1.5% and 3.5% of
      salary as of that date. The “grandfathered” contribution amount will remain
      constant until retirement or separation of service. These “grandfathered”
contributions are being made to compensate older employees for the shorter
      earnings period that their accounts will have to appreciate in value.





Until
      March 27, 2005, the Thrift Plan permitted participants to make contributions
      to
      the plan on a pre-tax salary reduction basis in accordance with the provision
      of
      Section 401(k) of the Internal Revenue Code. After six months of employment,
      the
      company matched 100% of participant’s contributions up to a specified limit. The
      Thrift Plan was administered under a Section 401(k) prototype plan. Under the
      Thrift Plan, the company’s contributions were invested in Tasty Baking Company
      common stock, and participants were able to choose from a selection of
      guaranteed and mutual fund options offered by Dreyfus for investment of their
      contributions. The company also maintained the Oxford Plan for the employees
      who
      work for its Oxford subsidiary. The Oxford Plan was similar to the Thrift Plan
      except that the company match was contributed in cash.





-11-




Effective
      October 2004, the company converted the SERP for one eligible active employee
      from an unfunded defined benefit to an unfunded defined contribution SERP to
      be
      consistent with the changes in the DC Plan.


**Thirteen
                  Weeks Ended****April
                  1, 2006**
              
              
              **March
                  26, 2005**Funded
                  retirement plan
              
              $
              479
              
              $
              -Defined
                  Contribution SERP
              
              
              71
              
              
              47Net
                  pension amount charged to income
              
              $
              550
              
              $
              47
   **7.**  **Postretirement
      Benefits Other than Pensions**





In
      addition to providing pension benefits, the company also provides certain
      unfunded health care and life insurance programs for a large number of its
      retired employees. These benefits are provided through contracts with insurance
      companies and health service providers.





Certain
      changes were made to the company’s postretirement benefits that resulted in a
      reduction of the Projected Benefit Obligation. Effective November 1, 2005,
      the
      company announced that it was amending the medical benefits paid for retirees
      by
      eliminating coverage for most post-65 retirees as of January 1, 2006. Coverage
      will be maintained for all pre-65 retirees and for certain post-65 retirees
      who
      had qualifying dependents that were pre-65. This change was made in response
      to
      the implementation of Medicare Part D which made non-sponsored plans financially
      more favorable to most post-65 retirees. Changes to retiree life insurance
      benefits were also simultaneously announced with the medical benefit changes
      effective as of January 1, 2006. Life insurance for incumbent retirees at
      company group rates was capped at $20 of coverage. Incumbent retirees who
      purchase coverage in excess of $20 and all new retirees after January 1, 2006
      will pay age based rates for their life insurance benefit.





Components
      of net periodic postretirement benefit cost/(benefit):





**Thirteen
                  Weeks Ended**April
                1, 2006
              
              
              **March
                  26, 2005**Service
                  cost
              
              $
              63
              
              $
              97Interest
                  cost
              
              
              90
              
              
              202Amortization
                  of unrecognized prior service cost
              
              
              (411
              )
              
              (105
              )Amortization
                  of unrecognized gain
              
              
              (29
              )
              
              -Total
                  FAS 106 Net Periodic Postretirement Benefit Cost
              
              $
              (287
              )
              $
              194





Employer
      Contributions:





Estimated
      company contributions for the thirteen weeks ended April 1, 2006 are
      $156.








**8.**  **Stock
      Compensation**





On
      March
      1, 2006, 131,000 shares of the company’s common stock were granted as a
      Restricted Stock Award (“RSA”) to certain management employees and a director.
      There were 42,000 shares awarded under the Tasty Baking Company 2003 Long Term
      Incentive Plan (“2003 Plan”) and 89,000 shares were awarded under the Tasty
      Baking Company 1997 Long Term Incentive Plan (“1997 Plan”). Under the terms of
      the RSA, recipients will fully vest in their shares 5 years after the date
      of
      the grant date. Recipients of the RSA forfeit all shares not vested prior to
      separation of employment. Recipients of the RSA are permitted to vote and
      receive dividends on all shares granted. According to IRS regulations, dividends
      paid on the RSA are treated as employee compensation.





On
      May 12,
      2005, 1,500 options were granted to employees of the company under the 1997
      Plan. In addition, on August 1, 2005, 10,000 options were granted to two new
      directors under the 2003 Plan.





-12-




On
      October
      29, 2004, 112,000 shares of the company’s common stock were granted as a RSA to
      certain management employees of the company under the 2003 Plan. Under the
      terms
      of the RSA, recipients will fully vest in their shares 5 years after the grant
      date. Recipients of the RSA forfeit all shares if not vested prior to separation
      of employment. The terms of the RSA also provide for accelerated vesting. In
      the
      event that the closing price of the company’s common stock is at least $14 for
      10 consecutive trading days, the vesting for the shares will shorten to three
      years, effective either on the tenth consecutive day of a $14 closing price
      or
      the third anniversary of the RSA, whichever is later. Recipients of the RSA
      are
      permitted to vote and receive dividends on all shares granted. According to
      IRS
      regulations, dividends paid on the RSA are treated as employee compensation.
      In
      2005, there were 30,000 shares forfeited under the RSA.





On
      March
      27, 2003, the Board of Directors adopted the Tasty Baking Company 2003 Plan,
      which was approved by shareholders at the 2003 Annual Meeting. Under the terms
      of the 2003 Plan, 400,000 shares were authorized for issuance. On August 7,
      2003, 312,056 of the authorized shares were granted as options to employees
      and
      directors of the company. In addition on August 7, 2003, 77,434 and 11,250
      options were granted to employees under the 1997 Plan and the 1994 Long Term
      Incentive Plan, respectively. During 2004, 30,000 shares were granted to
      employees and directors under the 1997 Plan and 16,000 shares were granted
      to
      employees under the 2003 Plan. Under these grants, the options vest in three
      equal installments beginning on the first anniversary date with a five year
      retention period from the date of grant. There were 375,000 shares authorized
      for issuance under the 1997 Plan.





On
      December 16, 2005, the company’s Board of Directors and its Compensation
      Committee approved the acceleration of vesting of all outstanding, unvested
      stock options previously awarded to the company’s employees, officers (including
      executive officers) and directors under the company’s 1994, 1997 and 2003 Long
      Term Incentive Plans. All unvested stock options were “out-of-the-money” as of
      the closing stock price of December 16, 2005, with a range of exercise prices
      from $7.55 to $11.30 per share. As a result of the acceleration, stock options
      to acquire approximately 173,167 shares of the company’s common stock became
      exercisable on December 31, 2005, 85% of which were scheduled to vest during
      2006. Of the total number of shares underlying the accelerated stock options,
      approximately 27,998 were held by directors and 114,394 were held by executive
      officers.





All
      other
      terms and conditions applicable to these stock options, including exercise
      prices and holding period requirements, remained unchanged. The company had
      previously imposed a five-year holding period requirement on any shares obtained
      through the exercise of options awarded on or after August 7, 2003. Only 35,000
      of the then unvested options were not subject to this requirement, with the
      lowest exercise price on those options set at $8.60 per share. Accordingly,
      this
      holding period requirement is expected to prevent unintended benefits to the
      holders of the majority of these stock options as a result of this accelerated
      vesting. The purpose of this accelerated vesting was to enable the company
      to
      avoid recognizing compensation expense associated with these options in future
      periods as required by Statement of Financial Accounting Standards (SFAS) No.
      123R, "Share Based Payment," which the company adopted January 1, 2006. As
      a
      result of the acceleration of vesting, the company expects to reduce the
      non-cash, pre-tax compensation expense it would otherwise be required to record
      by approximately $410 over the original option vesting period, including
      approximately $360 in fiscal 2006.





The
      option
      price is determined by the Compensation Committee of the Board and, in the
      case
      of incentive stock options, will be no less than the fair market value of the
      shares on the date of grant. Options lapse at the earlier of the expiration
      of
      the option term specified by the Compensation Committee of the Board (not more
      than ten years in the case of incentive stock options) or three months following
      the date on which employment with the company terminates.








**9.**  **Comprehensive
      Income**





**April
                    1, 2006**
                
                
                **March
                    26, 2005**Net
                    income as reported
                
                $
                954
                
                $
                479Other
                    comprehensive income:Current
                      year changes in fair value of derivativeinstruments
                      qualifying as hedges, net of ($73),and$0
                      income taxes,respectively
                
                
                109
                
                
                -$
                1,063
                
                $
                479


-13-


**Item
      2.****Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation**


(000’s,
      except share and per share amounts)





**Results
      of Operations**


All
      disclosures are pre-tax, unless otherwise noted.





Net
      income
      for the first quarter of 2006 was $954 or $0.12 per diluted share. Net income
      for the first quarter of 2005 was $479 or $0.06 per diluted share.





**Sales**





Net
      sales
      increased by 4.3% in the first quarter of 2006 compared to the same quarter
      in
      2005. Gross sales increased 5.1% in the first quarter versus the same quarter
      a
      year ago driven by a price increase instituted in the first quarter 2006 offset
      by a 5.1% sales volume decline.





Route
      net
      sales were up 4.6% in the first quarter 2006 versus 2005, driven by improved
      price realization as a result of a price increase and lower promotional
      spending. Non-route net sales were up 3.1% for the first quarter 2006 compared
      to the same period in 2005. The increase was attributed to sales from new
      markets entered during 2005 as well as the January 2006 price
      increase.





**Cost
      of Sales**





Cost
      of
      sales, excluding depreciation, for the first quarter of 2006 increased by 3.1%
      compared to the same period a year ago. This dollar increase in cost of sales,
      despite the volume decline, was impacted by increased fuel oil and gas costs
      which increased packaging and in-bound freight expenses. As a percentage of
      gross sales, cost of sales decreased 0.8 percentage point to 38.7% in the first
      quarter 2006 from 39.5% in the first quarter of 2005.





**Gross
      Margin**





Gross
      margin after depreciation, was 33.9% of net sales for the first quarter of
      2006
      compared to 32.4% in the first quarter 2005. The 1.5 percentage point
      improvement resulted from the improved price realization on route net sales
      and
      a $300 decrease in depreciation expense.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses for the first quarter of 2006 increased
      $290, or 2.3%, compared to the first quarter in 2005. This change is attributed
      to increased investment in radio and billboard marketing and increased freight
      and transportation costs compared to last year. These increases were partially
      offset during the quarter by a reduction in consulting fees and in headcount
      as
      a result of personnel changes.





**Depreciation**





Depreciation
      expense in the first quarter of 2006 decreased 14.3% compared to the same period
      a year ago. The higher depreciation expense in the first quarter of 2005 was
      impacted by the accelerated deprecation of the retired ERP system.





**Non-Operating
      Items**





Other
      income, net, increased by $62 in the first quarter of 2006 compared to 2005,
      primarily due to gain on the sale of a route.





Interest
      expense increased by $54 or 16.8%, in the first quarter of 2006 compared to
      the
      first quarter of 2005. This is due to increased borrowing levels resulting
      from
      the term loan and mortgage loan in the first quarter of 2006 versus the same
      period a year ago and higher rates of interest for unhedged portion of debt.
      The
      company is exposed to market risk relative to its interest expense as its notes
      payable and long-term debt have floating interest rates that vary with the
      conditions in the credit market. It is expected that a one percentage point
      increase in interest rates for the unhedged portion would result in additional
      quarterly expense of approximately $40, pre-tax.





On
      August
      3, 2005, in order to hedge a portion of the company’s exposure to changes in
      interest rates the company entered into a five-year $6 million interest rate
      swap with a fixed LIBOR rate of 4.64%. The company also entered into two
      five-year interest rate swaps for its term loans for $5.3 and $2.55 million
      on
      September 13 and December 21, 2005 with fixed LIBOR rates of 4.42% and 4.99%
      respectively. Also on December 21, 2005 the company entered into a ten- year
      $2.15 million interest rate swap for its mortgage loan with a fixed LIBOR rate
      of 5.08%. The LIBOR rates above are subject to an additional credit spread
      which
      can range from 75 basis points to 140 basis points.





-14-




The
      effective income tax rate was 37.6% and 19.0% for the thirteen weeks ended
      April
      1, 2006 and March 26, 2005, respectively. These rates compare to a federal
      statutory rate of 34.0%. In 2006, the difference between the effective tax
      rate
      and the statutory rate is the result of adjusting estimates for certain deferred
      tax assets and liabilities, as well as a net increase to the company’s tax
      reserve, partially offset by the estimated benefits from state tax credits.
      In
      2005, the difference between the effective rate and the statutory rate was
      the
      result of estimated state tax benefits generated from the state tax losses
      as
      well as state tax credits and the net reversal of a portion of the company’s tax
      reserve.





**Liquidity
      and Capital Resources**





Current
      assets at April 1, 2006, were $30,678 compared to $29,008 at December 31, 2005,
      and current liabilities at April 1, 2006, were $19,180 compared to $19,372
      at
      December 31, 2005. The increase in current assets was driven by an increase
      in
      accounts receivable due to increased sales in the first quarter of 2006 compared
      to 2005. Current liabilities were relatively flat.





**Cash
      and Cash Equivalents**





Historically,
      the company has been able to generate sufficient amounts of cash from
      operations. Bank borrowings are used to supplement cash flow from operations
      during periods of cyclical shortages. A credit facility is maintained with
      two
      banks and certain capital and operating leases are utilized.





Book
      overdrafts are recorded within current liabilities. Cash flows associated with
      book overdrafts are classified as financing activities. During 2005, the company
      revised the classification for book overdrafts in the Consolidated Balance
      Sheet
      and the Consolidated Statements of Cash Flows. They were previously reported
      as
      an operating activity. The revised classifications have also been reflected
      in
      the comparative prior year amounts for purposes of consistency.





On
      September 13, 2005, the company entered into the Amended Credit Agreement to
      replace its prior credit facility. This Amended Credit Agreement is committed
      until September 2010 in the amount of $35 million, and it eliminated the short
      term portion of the prior credit facility.




On
      September 13, 2005, the company also entered into a term loan for $5.3 million.
      The entire proceeds of the term loan were used to fund a voluntary contribution
      to the company’s previously frozen DB Plan.





On
      December 19, 2005, the company entered into a mortgage loan for $2.15 million
      and a second term loan for $2.55 million in order to fund the purchase of the
      Hunting Park Bakery building and land for $4.7 million from the DB Plan.





Net
      cash
      from operating activities for the thirteen weeks ended April 1, 2006 increased
      by $4,373 compared to the same period in 2005.  This increase was driven by
      a favorable change in assets and liabilities in the first quarter of 2006
      compared to the change in first quarter of 2005.  The favorable change in
      assets and liabilities resulted from an increase in accounts receivable that
      was
      lower than the increase in the prior year.  In addition, the first quarter
      of 2006 did not have a significant decrease in accounts payable as occurred
      in
      the first quarter of 2005.





Net
      cash
      used for investing activities for the thirteen weeks ended April 1, 2006
      increased by $1,911 relative to the same period in 2005.  In the first
      quarter of 2006, there was a $2,000 increase in capital expenditures relative
      to
      the prior year for new packaging equipment installed in our production
      facilities.





Net
      cash
      from financing activities for the thirteen weeks ended April 1, 2006 decreased
      by $2,483 relative to the comparable period in 2005, driven by reduced borrowing
      levels for working capital as defined by the Amended Credit
      Agreement.





For
      the
      remainder of 2006, the company anticipates that cash flow from operations,
      along
      with the continued availability of the Amended Credit Agreement, will provide
      sufficient cash to meet operating and financing requirements. ****




-15-


**Share-based
      Compensation**





The
      company adopted SFAS 123(R) using the modified prospective transition method,
      which requires the application of the accounting standard as of January 1,
      2006,
      the first day of the company’s fiscal year 2006. The company’s consolidated
      financial statements as of and for the period ending April 1, 2006 reflect
      the
      impact of SFAS 123(R). In accordance with the modified prospective transition
      method, the company’s consolidated financial statements for prior periods have
      not been restated to reflect, and do not include, the impact of SFAS
      123(R).





Share-based
      compensation expense recognized during the current period is based on the value
      of the portion of share-based payment awards that is ultimately expected to
      vest. The total value of compensation expense for restricted stock is equal
      to
      the ending price of Tasty Baking Company shares on the date of grant. SFAS
      123(R) requires forfeitures to be estimated at the time of grant in order to
      estimate the amount of share-based awards that will ultimately vest. The
      forfeiture rate is based on historical rates. Share-based compensation expense
      recognized in the company’s consolidated statements of income for the first
      quarter of fiscal 2006 includes (i) compensation expense for share-based payment
      awards granted prior to, but not yet vested as of January 1, 2006, based on
      the
      grant-date fair value estimated in accordance with the pro forma provisions
      of
      SFAS 123(R) and (ii) compensation expense for share-based payment awards granted
      subsequent to January 1, 2006, based on the grant-date fair value estimated
      in
      accordance with the provisions of SFAS 123(R). As share-based compensation
      expense recognized in the first quarter of fiscal 2006 is based on awards
      ultimately expected to vest, it has been reduced for estimated forfeitures.
      Prior to the effective date of SFAS 123(R), the company applied Accounting
      Principles Board Opinion No. 25 (“APB No. 25), “Accounting for Stock Issued to
      Employees” and related interpretations for the company’s stock option and
      restricted stock grants. In the company’s pro-forma information required under
      SFAS 123 for the periods prior to fiscal 2006, the company accounted for
      forfeitures as they occurred.





On
      March
      1, 2006, 131,000 shares of the company’s common stock were granted as a
      Restricted Stock Award (“RSA”) to certain management employees and a director.
      There were 42,000 shares awarded under the Tasty Baking Company 2003 Long Term
      Incentive Plan (“2003 Plan”) and 89,000 shares were awarded under the Tasty
      Baking Company 1997 Long Term Incentive Plan (“1997 Plan”). Under the terms of
      the RSA, recipients will fully vest in their shares 5 years after the date
      of
      the grant date. Recipients of the RSA forfeit all shares not vested prior to
      separation of employment. Recipients of the RSA are permitted to vote and
      receive dividends on all shares granted. According to IRS regulations, dividends
      paid on the RSA are treated as employee compensation. Total pre-tax compensation
      expense recognized in the consolidated statements of operations for restricted
      stock was $76 and $65 for the three months ended April 1, 2006 and March 26,
      2005, respectively.





On
      May 12,
      2005, 1,500 options were granted to employees of the company under the 1997
      Plan. In addition on August 1, 2005, 10,000 options were granted to two new
      directors under the 2003 Plan.





On
      October
      29, 2004, 112,000 shares of the company’s common stock were granted as a RSA to
      certain management employees of the company under the 2003 Plan. Under the
      terms
      of the RSA, recipients will fully vest in their shares 5 years after the grant
      date. Recipients of the RSA forfeit all shares if not vested prior to separation
      of employment. The terms of the RSA also provide for accelerated vesting. In
      the
      event that the closing price of the company’s common stock is at least $14 for
      10 consecutive trading days, the vesting for the shares will shorten to three
      years, effective either on the tenth consecutive day of a $14 closing price
      or
      the third anniversary of the RSA, whichever is later. Recipients of the RSA
      are
      permitted to vote and receive dividends on all shares granted. According to
      IRS
      regulations, dividends paid on the RSA are treated as employee compensation.
      In
      2005, there were 30,000 shares forfeited under the RSA.





On
      March
      27, 2003, the Board of Directors adopted the Tasty Baking Company 2003 Plan,
      which was approved by shareholders at the 2003 Annual Meeting. Under the terms
      of the 2003 Plan, 400,000 shares were authorized for issuance. On August 7,
      2003, 312,056 of the authorized shares were granted as options to employees
      and
      directors of the company. In addition on August 7, 2003, 77,434 and 11,250
      options were granted to employees under the 1997 Plan and the 1994 Long Term
      Incentive Plan, respectively. During 2004, 30,000 shares were granted to
      employees and directors under the 1997 Plan and 16,000 shares were granted
      to
      employees under the 2003 Plan. Under these grants, the options vest in three
      equal installments beginning on the first anniversary date with a five year
      retention period from the date of grant. There were 375,000 shares authorized
      for issuance under the 1997 Plan.





-16-




On
      December 16, 2005, the company’s Board of Directors and its Compensation
      Committee approved the acceleration of vesting of all outstanding, unvested
      stock options previously awarded to the company’s employees, officers (including
      executive officers) and directors under the company’s 1994, 1997 and 2003 Long
      Term Incentive Plans. All unvested stock options were “out-of-the-money” as of
      the closing stock price of December 16, 2005, with a range of exercise prices
      from $7.55 to $11.30 per share. As a result of the acceleration, stock options
      to acquire approximately 173,167 shares of the company’s common stock became
      exercisable on December 31, 2005, 85% of which were scheduled to vest during
      2006. Of the total number of shares underlying the accelerated stock options,
      approximately 27,998 were held by directors and 114,394 were held by executive
      officers.





All
      other
      terms and conditions applicable to these stock options, including exercise
      prices and holding period requirements, remained unchanged. The company had
      previously imposed a five-year holding period requirement on any shares obtained
      through the exercise of options awarded on or after August 7, 2003. Only 35,000
      of the then unvested options were not subject to this requirement, with the
      lowest exercise price on those options set at $8.60 per share. Accordingly,
      this
      holding period requirement is expected to prevent unintended benefits to the
      holders of the majority of these stock options as a result of this accelerated
      vesting. The purpose of this accelerated vesting was to enable the company
      to
      avoid recognizing compensation expense associated with these options in future
      periods as required by Statement of Financial Accounting Standards (SFAS) No.
      123R, "Share Based Payment," which the company adopted January 1, 2006. As
      a
      result of the acceleration of vesting, the company expects to reduce the
      non-cash, pre-tax compensation expense it would otherwise be required to record
      by approximately $410 over the original option vesting period, including
      approximately $360 in fiscal 2006.





The
      option
      price is determined by the Compensation Committee of the Board and, in the
      case
      of incentive stock options, will be no less than the fair market value of the
      shares on the date of grant. Options lapse at the earlier of the expiration
      of
      the option term specified by the Compensation Committee of the Board (not more
      than ten years in the case of incentive stock options) or three months following
      the date on which employment with the company terminates.





A
      summary
      of stock options as of April 1, 2006 is presented below:


**2006****Shares
                  (000s)**
              
              
              **Weighted-Average**
                **Exercise
                    Price**
              
              
              **Weighted-Average**
                **Remaining****Contractual****Term**
              
              
              **Aggregate
                  Intrinsic**
                  **Value
                    (000s)**Outstanding
                  at Dec. 31, 2005
              
              
              602
              
              $
              10.51Granted
              
              
              -
              
              
              -Forfeited
              
              
              (52
              )
              $
              10.58Exercised
              
              
              -
              
              
              -Outstanding
                  at April 1, 2006
              
              
              550
              
              $
              10.50
              
              
              6.5
              
              $
              1,318Options
                  exercisable at April 1, 2006
              550
              
              $
              10.50
              
              
              6.5
              
              $
              1,318


As
      of
      April 1, 2006, there was $0 of unrecognized compensation related to unvested
      stock options. For the first quarter of 2006, there were no options granted
      and
      there was no cash received from option exercises. There was no compensation
      expense recognized in the Consolidated Statements of Operations for stock
      options in the three months ended April 1, 2006.





The
      company recognizes expense for restricted stock using the straight-line method
      over the requisite service period. A summary of the restricted stock as of
      April
      1, 2006 is presented below:


**2006****Shares
                      (000s)**
                  
                  
                  **Weighted
                      -Average Fair Value**Nonvested
                      at December 31, 2005
                  
                  
                  82
                  
                  $
                  8.00Granted
                  
                  
                  131
                  
                  $
                  7.36Forfeited
                  
                  
                  -
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  -Nonvested
                      at April 1, 2006
                  
                  
                  213
                  
                  $
                  7.61




As
      of
      April 1, 2006, there was $1.1 million of unrecognized compensation cost related
      to unvested restricted stock, which is expected to be recognized over a
      weighted-average period of approximately 3.9 years.





-17-




**Forward-Looking
      Statements**





Statements
      contained in this Quarterly Report on Form 10-Q, including but not limited
      to
      those under the headings “Risk Factors” and “Management’s Discussion and
      Analysis,” contain "forward-looking statements" within the meaning of the
      Private Securities Litigation Reform Act of 1995, and are subject to the safe
      harbor created by that Act. Such forward-looking statements are based upon
      assumptions by management, as of the date of this Report, including assumptions
      about risks and uncertainties faced by the company. These forward-looking
      statements can be identified by the use of words such as "anticipate,''
      "believe,'' "could,'' "estimate,'' "expect,'' "intend,'' "may,'' "plan,''
      "predict,'' "project,'' "should,'' "would,'' "is likely to,'' or "is expected
      to'' and other similar terms. They may include comments about legal proceedings,
      competition within the baking industry, concentration of customers, commodity
      prices, manufacturing alternatives, consumer preferences, long-term receivables,
      inability to develop brand recognition in the company’s expanded market,
      production and inventory concerns, loss of one or both of the company’s
      production facilities, availability of capital, fluctuation in interest rates,
      pension expense and related assumptions, changes in long-term corporate bond
      rates or asset returns that could effect the recognition of pension corridor
      expense or income, governmental regulations, legal proceedings, pension expense,
      protection of the company’s intellectual property and trade secrets and other
      statements contained herein that are not historical facts.





Because
      such forward-looking statements involve risks and uncertainties, various factors
      could cause actual results to differ materially from those expressed or implied
      by such forward-looking statements, including, but not limited to, changes
      in
      general economic or business conditions nationally and in the company’s primary
      markets, the availability of capital upon terms acceptable to the company,
      the
      availability and pricing of raw materials, the costs to upgrade and enhance
      facilities, the cost to acquire (or lease) and fit-out a new facility and
      relocate thereto, the cost and availability of capital to fund improvements
      or
      new facilities, the level of demand for the company’s products, the outcome of
      legal proceedings to which the company is or may become a party, the actions
      of
      competitors within the packaged food industry, changes in consumer tastes or
      eating habits, the success of business strategies implemented by the company
      to
      meet future challenges, the retention of key employees, and the ability to
      develop and market in a timely and efficient manner new products which are
      accepted by consumers. If any of our assumptions prove incorrect or should
      unanticipated circumstances arise, our actual results could differ materially
      from those anticipated by such forward-looking statements. The differences
      could
      be caused by a number of factors or combination of factors, including, but
      not
      limited to, those factors described in the company’s 2005 Annual Report on Form
      10-K, “Item 1A, Risk Factors.” Readers are strongly encouraged to consider these
      factors when evaluating any such forward-looking statements. The company
      undertakes no obligation to publicly revise or update such statements, except
      as
      required by law. Readers are advised, however, to consult any further public
      disclosures by the company (such as in the company’s filings with the SEC or in
      company press releases) on related subjects.





-18-


**Item
      3.****Quantitative
      and Qualitative Disclosures about Market Risk**





For
      information regarding the company’s exposure to certain market risk, see Item
      7A, Quantitative and Qualitative Disclosures about Market Risk, in the 2005
      Annual Report on Form 10-K. There have been no material changes in the company’s
      portfolio of financial instruments or market risk exposures from the fiscal
      2005
      year-end.








**Item
      4.****Controls
      and Procedures**





(a)
      Evaluation of Disclosure Controls and Procedures





The
      company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the company’s reports filed or
      submitted pursuant to the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”), is recorded, processed, summarized and reported within the time
      periods specified in the Securities and Exchange Commission’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure at a reasonable assurance level that such
      information is accumulated and communicated to the company’s management,
      including its Chief Executive Officer and Chief Financial Officer, as
      appropriate, to allow timely decisions regarding required
      disclosure.





Management
      of the company, including the Chief Executive Officer and Chief Financial
      Officer, conducted an evaluation of the effectiveness of the company’s
      disclosure controls and procedures (as defined in the Exchange Act Rule
      13a-15(e)) as of April 1, 2006. Based upon the evaluation, the Chief Executive
      Officer and the Chief Financial Officer concluded that the company’s disclosure
      controls and procedures were not effective as of April 1, 2006, because of
      the
      material weaknesses in internal control over financial reporting related to
      (i)
      accounting for income taxes and (ii) controls over invalid journal entries
      as
      fully described in our Annual Report on Form 10-K for the year ended December
      31, 2005.





We
      performed additional analysis and other post-closing procedures to provide
      reasonable assurance that our Consolidated Financial Statements are prepared
      in
      accordance with generally accepted accounting principles. Accordingly,
      management believes that the financial statements included in this report fairly
      present in all material respects our financial condition, results of operations
      and cash flows for the periods presented.




(b)
      Changes in Internal Control over Financial Reporting





During
      the
      period covered by this report, the company has made changes in its internal
      control over financial reporting that have materially affected or are reasonably
      likely to materially affect, the company’s internal control over financial
      reporting. In particular, the company implemented certain enhancements to its
      internal control over financial reporting related to the following material
      weakness described in the company’s Form 10-K for the year ended December 31,
      2005:





*Controls
      over Invalid Journal Entries:* Effective
      March 2006, the company implemented a quarterly review by the Controller of
      all
      posted journal entries to ensure that no manual journal entries by unauthorized
      personnel are posted to the General Ledger. Additionally, effective February
      2006, the Controller reviews every balance sheet reconciliation in detail either
      monthly or quarterly, per the published reconciliation schedule. These
      enhancements have not been in place for a sufficient length of time to allow
      management to obtain a large enough sample size to complete remediation testing
      on these controls.





There
      were
      no additional changes in the period covered by this report that materially
      affected or are reasonably likely to materially affect, the company’s internal
      control over financial reporting.





During
      2006, the company expects to implement additional enhancements to its internal
      control over financial reporting related to the material weaknesses in
      accounting for income taxes and controls over invalid journal entries and
      general ledger reconciliations described in the company’s Form 10-K for the year
      ended December 31, 2005. Specifically, the company will evaluate using a
      separate third party tax accounting specialist to assist management with the
      details of completing the quarterly and year-end tax provision, and the company
      will leverage security controls within the ERP system to limit general ledger
      journal access.





-19-


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**





**PART
      II. OTHER INFORMATION**





**Item
      5.****Other
      Information**





**Change
      of Control Agreement**





As
      of May
      11, 2006, the company entered into a change of control agreement with Mr.
      Laurence Weilheimer (“Executive”), who recently joined the company as General
      Counsel. The agreement has substantially the same terms as Exhibit 10(v) to
      the
      company’s Annual Report to Shareholders for the fiscal year ended December 31,
      2005, except that Executive is entitled to receive one times his annual base
      salary upon a triggering event. Pursuant to this agreement, in the event that
      Executive’s employment is terminated (i) by the company (other than for cause)
      within one year following a change of control, (ii) by Executive for “good
      reason” within one year following a change of control, or (iii) by Executive at
      his election at the end of the 13th month following a change of control,
      Executive will be entitled to receive certain continuing compensation benefits
      from the company. For purposes of these agreements, “good reason” means any
      material change in the authority, duties and responsibilities of Executive
      so as
      to be inconsistent with his background, training and experience, or the
      company’s continued failure to perform its duties under the agreement in any
      material respect, which failure has not been cured within 20 days after written
      notice has been given by Executive to the company.





The
      compensation benefits which Executive will be entitled to receive as a result
      of
      a termination of employment in connection with a change of control as provided
      under the agreement include: (i) one times his annual base salary payable over
      12 months, (ii) a cash bonus, payable for the first fiscal year following
      termination, equal to his average historical annual cash bonus (or, if no annual
      bonus has yet been paid to Executive, the average shall be deemed equal to
      17.5%
      of Executive’s annual base salary) multiplied by the percentage derived by
      dividing the aggregate bonuses awarded to all senior executives for each such
      year by the average annual cash bonuses received by such senior executives
      in
      the prior five fiscal years, (iii) medical and life insurance benefits for
      a
      period of 12 months after termination, and (iv) acceleration of the vesting
      of
      all outstanding stock options, subject to any applicable shareholder approval
      requirement. Executive will be entitled to receive these benefits without any
      obligation to mitigate damages by seeking other employment. Payment of the
      benefits is subject to the requirements of Section 409A of the Internal Revenue
      Code of 1986, as amended, and is conditioned upon Executive’s signing a general
      release in favor of the company.





The
      aggregate amount of the benefits payable to Executive under the agreement is
      subject to certain limitations. The company will not be obligated to make
      payments to Executive to the extent that the aggregate amount of benefits
      payable to Executive upon a change of control exceeds the “parachute payment”
limitations under Section 280G(b)(3) of the Internal Revenue Code of 1986,
      as
      amended. In addition, in no event shall the aggregate amount of the compensation
      benefits payable to Executive and all other senior executives of the company
      as
      a result of a change of control exceed three percent (3%) of the total
      transaction value for such change of control. In the event the aggregate amount
      of compensation benefits payable on a change of control would exceed such limit,
      the amount of benefits payable to Executive and all other senior executives
      will
      be proportionally reduced.





The
      agreement remains in effect until the executive’s death, disability, normal or
      early retirement, termination for cause, or voluntary termination of employment.
      The agreement expressly provides that it does not constitute a contract for
      future employment and that the executive’s employment shall continue to be
      at-will, as defined by applicable law.





**Exploration
      of Long-Term Strategic Manufacturing Options**





On
      May 11,
      2006, Tasty Baking Company announced that the company will begin exploring
      long-term strategic manufacturing options. The company will evaluate various
      manufacturing alternatives, including upgrading the original Philadelphia
      bakery, enhancing use of the Oxford bakery, relocating to a new facility or
      a
      combination of these options. There can be no assurance that any change in
      the
      company’s manufacturing strategy will occur as a result of this
      evaluation.




-20-


**Item
      6.****Exhibits**




(a)
              Exhibits:Exhibit
                  10.1 - Form of Amended and Restated Restricted Stock Award Agreement
                  between the company and certain executive officers, dated March
                  1, 2006,
                  amending and restating certain Restricted Stock Award Agreements,
                  dated
                  October 29, 2004, previously entered into pursuant to the 2003
                  Long Term
                  Incentive Plan, is incorporated herein by reference to Exhibit
                  10(o) to
                  Form 10-K for the fiscal year ended December 31, 2005.Exhibit
                  10.2 - Form of Restricted Stock Agreement for the 1997 Long Term
                  Incentive
                  Plan is incorporated herein by reference to Exhibit 10(t) to Form
                  10-K for
                  the fiscal year ended December 31, 2005.Exhibit
                  10.3 - Form of Restricted Stock Agreement for the 2003 Long Term
                  Incentive
                  Plan is incorporated herein by reference to Exhibit 10(u) to Form
                  10-K for
                  the fiscal year ended December 31, 2005.Exhibit
                  31.1 - Certification of Chief Financial Officer pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 2002.Exhibit
                  31.2 - Certification of Chief Executive Officer pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 2002.Exhibit
                  32 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.


-21-


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**





**SIGNATURE**










Pursuant
      to the requirements of the Securities Exchange Act of 1934, the company has
      duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.














TASTY
                  BAKING COMPANY(Company)May
                  11, 2006
              
              /s/
                  David S. Marberger(Date)
              
              DAVID
                  S. MARBERGERSENIOR
                  VICE PRESIDENT ANDCHIEF
                  FINANCIAL OFFICER(Principal
                  Financial andAccounting
                  Officer)


-22-